Ask Me Help Desk

Ask Me Help Desk (https://www.askmehelpdesk.com/forum.php)
-   Finance (https://www.askmehelpdesk.com/forumdisplay.php?f=125)
-   -   The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is (https://www.askmehelpdesk.com/showthread.php?t=505197)

  • Sep 6, 2010, 10:26 AM
    ram151
    The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is
    The coupon rate on a tax-exempt bond is 5.6%, and the rate on a taxable bond is 8%.Both bonds sell at par. The tax bracket (marginal tax rate) at which an investor would be indifferent between the two bonds is:


  • Sep 6, 2010, 04:47 PM
    morgaine300

    Please read the guidelines for posting homework:
    https://www.askmehelpdesk.com/financ...-b-u-font.html
  • Feb 3, 2012, 02:01 PM
    cbryan14
    The formula for this problem would be:

    T(tax rate)= 1 - ( Rm*rate of muni / r*rate of corporate bond )

    T = 1 - (.056 / .08)

    T = 1 - .7

    T = .3 or 30% tax bracket would make the investor indifferent ( meaning it wouldn't matter which bond the investor chose because with a 30% tax bracket the bonds would yield the same income.

    hope it helps.

  • All times are GMT -7. The time now is 09:25 PM.